PERM: A model of E-commerce Adoption in Developing Countries
Alemayheu Molla
Department of Information Systems, University of Cape Town & Faculty of Business and Economics, Addis Ababa University
Tel: IDD+27 21 650-4233
Fax: IDD+27-21 650 2280
Paul S. Licker
Department of Information Systems, University of Cape Town
Tel: IDD+27 21 650-2582
Fax: IDD+27-21 650 2280
TRACK: IT MANAGEMENT IN DEVELOPING COUNTRIES
PERM: A model of E-commerce Adoption in Developing Countries
Abstract
A growing volume of literature proclaims the benefits of e-commerce for developing countries. However, unless business organizations in developing countries incorporate e-commerce into their operations, the potential benefit of e-commerce remains potential and not reality. Currently, there does not appear to be a model to systematically investigate e-commerce adoption in developing countries. This paper proposes such a model called the perceived eReadiness model (PERM). The model posits that an organization’s perception of its internal (POER) and external (PEER) eReadiness influences both the initial adoption and the subsequent maturity of e-commerce.
1. INTRODUCTION
Many in the development and academic quarters (see for example Adam, 1996; ECA, 1999; CID/HU, 1999; Goldsten & O’connor, 2000; Kamel and Hussein, 1999; Montealegre, 1996) hail e-commerce as having the potential to create new opportunities, eliminate barriers and improve efficiency of businesses in developing countries. As a result, the adoption of e-commerce is considered to be an important factor in facilitating the growth of developing countries as well as the success of the global economy (McConnell & WITSA, 2000). While the opportunities and potential of e-commerce might be real, the extent of e-commerce uptake in developing countries and the actual realization of the benefits e-commerce aficionados allude to remain unknown. Beyond the small academic and popular literature on the technological, legal, policy and other requirements, there is little systematic information on what drives e-commerce adoption in developing countries. Specifically, there does not appear to be a model that can be applied in the investigation of the determinants of e-commerce adoption in developing countries. This paper introduces such a model, which we refer to as the perceived eReadiness model (PERM).
2. THEORETICAL BASE
A number of studies have investigated the organizational adoption of IT by developing empirical research models drawn from a wide variety of perspectives: such as organizational change perspective (Moreton, 1995; Orlikowski, 1991), managerial action perspective (Kraemer and king, 1981), the institutional perspective (Kling and Iacono, 1989; Orlikowski, 1993); the political and social perspective (Kling and Scacchi, 1982; Robey & Boudreau, 1999). Except in a few cases (Boer and Walbeek, 1999; Ein-Dor et al, 1997; Kasongo,1993; Montealegre, 1999a) most of the previous studies tend to examine businesses in the developed countries. However, because of the apparent differences in the social, business, economic and technological contexts of developed and developing countries, the findings of such studies are hardly generalizable. In addition, the majority of the research is concentrated on the implementation stage with little empirical research on the determinants of IT adoption.
Studies that investigated IT adoption by organizations more directly (Cheochan et al, 2000, Orlikowski, 1993; Seyal et al, 2000; Thong, 1999; Thong and Yap, 1995) identify a number of factors related to the CEO, the context of the organization, the technology and the environment as determinants of IT adoption. However, there are some limitations related to the theoretical and operational constructs of the models used in these studies.
First, with the exception of those that looked into EDI adoption (see Damssgaard, 1996), there is the obvious focus on pre-e-commerce era. E-commerce, as one facet of the network economy, is amenable to some of the principles of networks such as network externalities. Network externalities refer to the benefits or costs to current users when an additional user joins some real or virtual network (Bailey et al, 1995). The value of adopting and using a technology in this sense depends on aspects external to the technology. For example, Sillince et al (1999) indicate strong relationship between the firm’s decision to use e-mail and the use of e-mail by customers, suppliers and other organizations with which the firm communicates. In a similar vain, if organizations assess that their customers and partners are not connected and not ready to use their e-commerce systems, they might be less likely to adopt e-commerce than might be the case otherwise. However, existing models of adoption do not consider such issues.
The literature also identifies antecedents such as organizational size, complexity, sector and CEO characteristics to technology adoption. The general argument in such works is that, large and complex organizations are likely to develop innovative capabilities and require the processing of large volume of information. Thus, there might be a strong association between size and complex organizational structure and the adoption of information technology. While it is difficult to completely refute such arguments, it is however possible to question some of the assumptions. For example, in almost all cases, organizational size is operationalized in terms of the number of employees. In the era of outsourcing and virtual collaboration, where the order of the day is to focus on core competencies, dependency on the number of employees as indicator of organizational size has to be taken cautiously. Moreover, a number of studies (Akkeren and Cavaye, 1999; APEC, 1999; Baldwin, 2001; Behrendorff and Rahman, 1999; Chappell, et al, 1999) argue that e-commerce provides small and medium sized organizations opportunities equal to, if not exceeding, their bigger counterparts.
The operationalization of CEO characteristics is also problematic as the focus mainly has been on the attributes of an individual manager and his/her IT knowledge rather than on the whole organization. Such models assume certainty as to the availability of choices from the environment and argue that there is a positive relationship between ‘innovative managers’ and their IT background and technology adoption. But because of the nature of the environment, managers in developing countries, despite having the ‘innovative’ attributes, might not have a range of options from which to choose an innovation and the environment might put significant constraints on the kinds of innovations to which the managers aspire (see Munene, 1995). In addition, when it comes to e-commerce, knowledge of the business is equal to and at times even more important than knowledge of information technology (Bekele, 2000; Kebede, 2001). Hence, there is much to be learned if the focus of the investigation shifts to what the CEOs perceive of their internal and external environment rather than what they might think of themselves and their IT knowledge.
In relation to e-commerce adoption and diffusion in developing countries, a new stream of literature called “eReadiness” has also emerged. Over the last two to three years, a number of eReadiness assessment tools have been developed (see www.bridges.org for a summary). While on the surface, each eReadiness assessment tool appears to gauge the preparation and potential of an organization, society or economy to migrate to e-commerce, there is a lack of consensus among the assessment tools. Practically, each tool differs from the others in terms of its conceptualization of eReadiness, its goal, the eReadiness being measured, results and standards. So far, except for highlighting the list of “preconditions” for e-commerce and the relative standing of countries in terms of those preconditions, the literature on eReadiness does not provide us with a conceptually strong model to investigate e-commerce adoption in developing countries. Thus, if the concept of eReadiness is to be useful for academic investigation, it needs to be anchored in theory and its constructs drawn carefully. In addition, what to assess needs to be clearly defined so that it is possible to make proper comparisons and learned generalizations among the various studies.
In general, from the review of the literature, it can be learned that there is a clear lack of appropriate model to investigate e-commerce adoption in developing countries. In the following section, we introduce a model of e-commerce adoption in developing countries called the Perceived eReadiness Model (PERM).
3. PERM
The general argument of the proposed model is that perceived eReadiness explains e-commerce adoption. We define perceived eReadiness as the degree to which an organization evaluates that it has the internal preparations and favorable external conditions to conduct e-commerce. Thus defined, the concept has two constructs- Perceived Organizational eReadiness (POER) and Perceived External eReadiness (PEER). Taken together, PEER and POER should predict e-commerce adoption and explain a significant part of the variance in the level of e-commerce adoption.
Before discussing any further the details of the suggested model, the focus on perception needs to be clarified and justified. Measuring a potential adopters’ perception has been considered both a ‘classic issue’ and a ‘potential key’ for integrating previous research and establishing a cumulative tradition in the adoption and diffusion research (Moore and Benbasat, 1991). So far, the adoption literature has been looking into the perception of the technology, and the benefits of using the technology. But, because of the importance of internal and external factors in the adoption of e-commerce, it is important to examine how businesses evaluate and assess the readiness of their internal organization and the external environment for e-commerce. Our emphasis on perception is therefore consistent with the established tradition of IS research on adoption and diffusion and is based on organizational science theories that emphasize managerial scanning and the role of the perceived environment (Miller and Friesen, 1984) and the organizational ecology model which stresses the forces of “external controls” on the preferences and decisions of an organization (Robey and Zmud, 1992).
Investigating organizational perception is not, however, a simple task and it is instructive that one works with proxies and surrogates. The managerial innovation model on the relationship between information technology and organization underscores that the adoption of new technologies depends on the managers’ awareness of problems and on organizational culture that encourages risk taking (Robey and Zmud, 1992). In this regard, a number of studies outline the roles played by managers (especially top managers) (Scheepers, 1999; Jarvenpaa and Ives, 1990). Other studies (Jarvenpaa and Ives, 1990; Guthire, 1999) also indicate that senior managers, via their perceptions and decisions, could and do systematically influence the content and character of organizational activities. This is especially applicable to the management styles of organizations in developing countries where authority and decision making tend to concentrate at the top level with little managerial delegation and grass roots participation (Austin, 1990; Munene, 1995). Therefore, on the basis of the overwhelming evidence on the role of managers on the goals, resource allocations and directions of an organization, the managers’ perception of the organizational and external eReadiness can safely be used as a proxy of the organizations’ perceptions.
3.1. The Constructs of PERM
As indicated earlier, the suggested model of e-commerce adoption is based on two constructs- POER and PEER. E-commerce is an emerging field without accepted paradigms or well-defined sub-fields. Therefore, in the investigation of e-commerce, it is relevant to apply multiple theoretical frameworks as this might provide useful insights into the various facets of e-commerce in developing countries. In elucidating the specific operational constructs of the model, we borrow from the socio-technical system theory of organizations and Porter’s competitiveness theories.
The socio-technical system theory premises that an organization is a combination of social and technical components open to its environment (Trist and Pollack, 1963). Based on this theory, Leavitt (1965) proposes that organizations can be viewed as the interaction of four highly interrelated components: task, technology, structure and people. This basic model has been modified and enhanced to best describe the essential elements that constitute the modern day organization (Delsi, 1990; Guha et al, 1997). The model implies that one can study organizational systems from the points of view of the organizational process that must be included; organizational structure that must be in place; the (information) technology that must be available; the cultural assumptions in the organization, the nature of its leadership; and the resources that are stocked or soon to be acquired.
The relevance of the above to the proposed model of e-commerce adoption is clear. It helps to systematically define the components of an organization. Thus, the discussion on the constructs of the perceived organizational eReadiness (POER) needs to reflect the components of an organization that affect e-commerce adoption. The emphasis is thus to assess an organization’s eReadiness in terms of its main components as perceived by its top managers.
In exploring the question of why (and how) a nation becomes competitive and a home base for successful businesses, certain types of innovations and applications, Porter (1990) suggests the theory of the competitiveness of nations. According to Porter, factor conditions, demand conditions, related and supporting industries, firm structure rivalry and strategy and government are the most important attributes that shape the environment in which local firms operate and compete. Porter further suggests that a firm must understand what it is about its home nation that is most crucial in determining the firm’s ability to operate successfully. Using Porter’s framework, we would be able to argue that the perception of an organization about the eReadiness of its customers and partners (which together with competitors define the demand condition); the perceived role played by the government in promoting e-commerce and the availability of support and conducive factors for conducting e-commerce from other relevant industries might affect e-commerce adoption. In addition, the structure and strategy attribute in Porter’s theory of competitiveness provides further support for the constructs of organizational eReadiness.
Using the theoretical underpinnings discussed above, it is now possible to discuss the detailed constructs of PERM. Perceived organizational eReadiness (POER) is thus defined as managers’ evaluation of the degree to which they believe that their organization has the awareness (A), resources (R) and commitment (C) to implement e-commerce. Perceived external eReadiness (PEER), on the other hand is the degree to which mangers believe that the market forces (PMFR), the government (PGER) and other supporting industries (PSIR) are ready to facilitate the organizations’ e-commerce implementation. We hypothesize that both POER and PEER predict the organizations’ initial e-commerce adoption and the maturity of e-commerce adoption. Figure 1 provides the complete model followed by a brief description of each of the constructs of the model.